Site C’s bill of goods carries a hefty price tag

Difficult to imagine them getting caught dead in the same room a few weeks ago, but to paraphrase William Shakespeare, “Site C acquaints a man with strange bedfellows.”

The list of supporters includes the Canadian Taxpayers Federation, the Allied Hydro Council, the Independent Contractors and Businesses Association, B.C. Building Trades, Christian Labour Association, the Progressive Contractors Association, MoveUp and the B.C. Chamber of Commerce.

It’s a veritable Site C love-in.

They all seem to think they’ve won something too, which is going to be fun to watch when the honeymoon is over.

Seven years ago – at Site C’s dress rehearsal announcement – it was former Premier Gordon Campbell in the lead role.

Justifying its then-$6.6 billion cost, he chose to focus on demand: “The decision to pursue Site C comes at a time when B.C. Hydro forecasts that B.C.’s electricity needs will grow by 20 to 40 per cent over the next 20 years.”

As someone tweeted this week: “We’ll need Site C to power Tesla trucks.”

Evidently they’re only going to be sold in B.C. How else to justify the gigantuous spread between B.C.’s and, say, Quebec’s forecasts?

In 2016, Hydro-Quebec estimated its demand would rise by an average of 0.4 per cent annually over the next decade.

There’s a long ways to go to hit even the low end of Campbell’s fateful forecast.

B.C. consumed 62,467 gigawatt-hours of electricity in 2010. Last year, it had jumped to 62,951 gigawatt-hours, an increase of 0.8 per cent.

But that’s only seven years. How about two decades? B.C. was home to 3.9 million residents in 1996, there were 1.5 million households across the province, GDP had hit $139.9 billion and we consumed 64,664 gigawatt-hours of electricity.

By 2016, B.C.’s population had grown to 4.75 million, there were 468,000 more households, GDP had risen to $240.8 billion and we consumed 1,713 less gigawatt-hours.

It wasn’t a rogue year. In 15 of the last 20 years, we’ve used less electricity than we did in 1996.

Then there’s the tiny matter of settling the bill.

From Campbell’s $6.6 billion to former Premier Christy Clark’s initial $7.9 billion – “a bargain” Hydro called it at the time – to Premier John Horgan’s $10.7 billion, Site C won’t be cheap no matter who slices it.

Following the B.C. government’s 2014 all systems go announcement for Site C, Kieron Stopforth – a lead hydro analyst at Bloomberg New Energy Finance in London – observed that Site C’s “capital expense is pretty high. The cost range for most large-scale hydropower plants around the world is between $1 million and $6 million per megawatt. That compares with more than $7 million for Site C.”

And that was when the cost was $8.8 billion.

According to the C.D. Howe Institute, Newfoundland & Labrador’s Muskrat Falls hydro project – spelled boondoggle – is currently 54 per cent over budget. Muskrat is 86 per cent complete.

Two years into construction – roughly 20 per cent of its way towards completion – and Site C’s estimated cost is now 35.4 per cent over the first $7.9 billion estimate in 2014.

How much faith can we have in the latest estimate?

In a 2016 study – “The Principle of the Malevolent Hiding Hand; Or, the Planning Fallacy Writ Large” – University of Oxford’s Said Business School professor Bent Flyvbjerg and Harvard Law professor Cass Sunstein examined 2,062 global infrastructure projects and found that the cost-benefit ratio was “typically overestimated by 50 to 200 percent” and that the information behind the ratio analysis “so misleading as to be worse than worthless, because decision makers might think they are being informed when in fact they are misinformed.”

Premier John Horgan

But Horgan has a plan.

Buried in a backgrounder to the government’s announcement news that “EY Canada has been retained by BC Hydro to provide dedicated budget oversight, timeline evaluation and risk assessment analysis for the duration of the project.”

A little over a year ago EY Canada – better known as Ernst & Young – gave Site C a clean bill of health stating the project was “on time and on budget.”

According to a Canadian Press report, the accounting firm went so far as to cut the estimated cost of the project from $8.8 billion to $8.3 billion.

There was a catch. Isn’t there always?

Ernst & Young came to its conclusion relying solely “on information provided by (Hydro). We have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of such information.”

Certainly inspires confidence for the $10.7 billion round.

There’s a bit of a running theme to that practice at Hydro. Disclaimers abound in the third-party Site C reviews: “Hey, the numbers you gave us look great as far as we can tell, but beats us how you arrived at them.”

Ernst & Young also found that B.C. has a “robust regulatory framework in place to oversee hydraulic fracturing” and has “already established a carefully-considered and systematic financial security approach for mine reclamation” in two other independent reports for the government, but I digress.

Ironically, in the very week that B.C. was committing to push ahead with a hydroelectric facility at a cost of about $11.9 million per megawatt – remember Stopworth’s $7 million per megawatt in 2014? – Alberta auctioned off 400 megawatts of renewable energy capacity to be built in the province.

Bloomberg News headlined their story “Canada’s Oil Capital Is Making the Leap Toward Renewable Energy.”

The government exceeded its target, sealing a deal for 595 megawatts of capacity.

The “weighted average bid for wind energy was 3.7 cents a kilowatt-hour or $37 per megawatt-hour.”

Site C will provide roughly 4.6 million megawatt-hours of power annually.

Harry Swain – former chair of the Site C joint review panel – estimated the cost at $95/MW-Hour in 2016, when Site C still had an $8.8 billion price tag.

What Prof. Flyvbjerg describes as “the rapture politicians get from building monuments to themselves and their causes” will come home to roost.

The piper will need to be paid. Pity the premier it falls on.

Will higher energy costs lead to greater conservation, thereby, negating any rate increases?

Will it deter new businesses from opening up shop in B.C., as it already has with a silica sand smelter last year when the developers chose Washington state over Golden due to power costs.

British Columbians likely fall into one of three groups when it comes to Site C: those adamantly opposed, those fiercely in support and the rest biting their lips in fear.

One thing most will likely agree on, however, is that this can’t happen again.

No government should leave another government in such circumstances and on that point Horgan was largely silent.

Last December, the B.C. NDP – chasing for votes – had a Facebook post, it read: “Site C will be yet another cost burden for British Columbians, their children and grandchildren.”

After last week’s revised forecast probably a safe bet to tack on great-grandchildren as well.